However, the economy is now facing some serious challenges, including the decline in the rate of economic growth, increasing unemployment, an increasing public sector deficit, and an increasing domestic debt. In 2003, GDP grew by 4.3%, up from 1.8% in 2002 when sugar production was diminished by a hurricane. Although final figures are not yet available, the growth rate for 2004 is estimated at 4.6%. However, this is still below the average growth rate of the past two decades.

Mauritius stands today at the crossroads of its future development. The main engines of growth in the Mauritian economy, namely the sugar and textile industries, are faced with the erosion of preferential trade arrangements stemming from the proposed reforms of the European Union sugar regime, the phasing out of the Multi Fiber Agreement, and the increasing trend towards the globalization of world trade. The prospects of intensified global competition from low-wage countries (particularly China and India) and limited future opportunities for preferential trade arrangements represent serious constraints on future growth.

Realizing the need to diversify the economy, Mauritius has embarked on an ambitious development strategy to find new drivers for economic growth. The government is putting emphasis on the development of the ICT sector and the promotion of Mauritius as a seafood hub in the region, using existing facilities at the Freeport (free trade zones at the port and airport). Measures are also being taken to modernize and restructure the sugar and textile sectors through better technology and greater capitalization.

The business climate is friendly yet extremely competitive. Mauritius has a long tradition of private entrepreneurship, which has led to a strong and dynamic private sector. Firms entering the market will find a well-developed legal and commercial infrastructure. With regard to telecommunications, Mauritius has a well-developed digital infrastructure and offers state-of-the-art telecommunications facilities including international leased lines and high speed Internet access. Telecommunications services were liberalized in January 2003. The government policy is to act as a facilitator to business, leaving production to the private sector. However, it still controls key utility services directly or through parastatals, including electricity, water, waste water, postal services, and broadcasting. The State Trading Corporation controls imports of rice, flour, petroleum products, and cement.