SEYCHELLES

COUNTRY OVERVIEW

LOCATION AND SIZE.

The Seychelles are a group of islands in the Indian Ocean about 925 kilometers (575 miles) northeast of Madagascar. The country consists of 115 small islands with a total land area of 455 square kilometers (176 square miles) and a total coastline of 491 kilometers (305 miles). The territory of the Seychelles is about 2.5 times the size of Washington, D.C. The country consists of 2 groups of islands, the largest being the Mahe group in the northern part of the archipelago, comprised of 40 granite rock islands (the largest are Mahe, Praslin, La Digue, Silhouette, Fregate, and North) with hilly interiors rising up to 900 meters (2,953 feet). The other group consists of about 65 small coral islands spread over a wide area of ocean south of the Mahe group. Mahe Island, with a total area of 153 square kilometers (59 square miles) is home to the capital city Victoria (pop. 40,000, 1997). The strategic importance of the Seychelles group is derived from its location in the Indian Ocean on the sea route from South Africa to the Indian subcontinent, which was a major route before the Suez Canal was opened in 1869.

POPULATION.

The population of the Republic of Seychelles was estimated at 79,326 in July 2000, an increase of around 16 percent from 68,598 in 1987. In 2000 the birth rate stood at 17.99 per 1,000 and the death rate at 6.74 per 1000. The estimated population growth rate is 0.49 percent, a low rate attributed mainly to the high emigration rate of 6.3 per 1,000. Life expectancy at birth is 64.87 years for males and 76.12 years for females. It is expected that the country's population will reach 100,000 by 2020.

The diverse population is composed of 3 major ethnic groups: French settlers, freed slaves of African descent, and Indians brought to work on the plantations. Creoles (mixture of Asian, African, and European) make up 89.1 percent of the population, Indians make up 4.7 percent, and Malagasy (from Madagascar) make up 3.1 percent. There are also small minorities of Chinese (1.6 percent) and European (1.5 percent) origin. Some 29 percent of the population is below the age of 14, and 6 percent is older than 65. A majority of the country's inhabitants, 56.1 percent, lives in urban areas.

Limited natural resources and scarce land forces the government of the Seychelles to limit inflow of immigrants and to control population growth. In the 1980s there was sizable emigration of the people from islands due to economic difficulties and political instability. In the early 1990s many of them returned home when the Seychelles government significantly liberalized the political and economic environment and allowed opposition parties.

OVERVIEW OF ECONOMY

Tourism, agriculture and fishing, and industry are the 3 main sectors of the Seychelles economy. The current structure of the country's economy was formed during the 1970s and 1980s and underwent drastic changes in the 1990s. Despite government efforts to encourage agricultural and industrial development, tourism remains the dominant sector in the country's economy. It provides most of the country's revenue and employment, and it maintains a positive image of the archipelago as an exotic and desirable destination.

France acquired the uninhabited islands in 1756 and populated them with French settlers and slaves from the African continent. In 1814, after the Napoleonic wars in Europe, Great Britain established its control over the Seychelles, administering them from Mauritius. The islands were important to British trade routes, due to their strategic location halfway between the Cape of Good Hope (South Africa) and the Indian subcontinent. This strategic importance diminished somewhat after the opening of the Suez Canal in 1869. In 1903 the Seychelles became a Crown Colony, but its extremely limited resources and remote location isolated the country from the major events of the 20th century.

Since the 1970s, 2 factors have impacted the economic and social life of the Seychelles: mass-market international tourism—an international airport opened in 1971—and independence in 1976, which ushered in a period of centralized planning. A government led by France Albert Rene introduced state control over major sectors of the economy, and the first centralized 5-year plan was introduced in 1985, modeled after the socialist economies of Eastern Europe. This plan created around 30 parastatals (state-controlled enterprises) covering all sectors of economic activities. With the demise of the Soviet Union and of state socialism in the early 1990s, the Seychelles government initiated elements of a free-market economy under the guidance of the International Monetary Fund (IMF) and World Bank. Most state enterprises, with the exception of public utilities and transport, were privatized, and the government attempted to increase foreign investments by developing the country as an international "offshore" financial-services center. The economic development program in the 1980s and 1990s increasingly relied on external borrowing, although the country managed to reduce its total external debt from US$474 million in 1979 to US$166 million in 1989. In 1999 the external public debt was estimated by the IMF at US$188.5 million (31 percent of the GDP), compared with US$153 million (26 percent of the GDP) in 1997. These figures are very high for a small country of 79,000 people, leading to fiscal and external imbalances and to the growing burden of external debt servicing.

POLITICS, GOVERNMENT, AND TAXATION

Since achieving independence from the United Kingdom in 1976, the Seychelles political scene has been dominated by the intense competition between 2 political parties and personalities, the right-centrist Seychelles Democratic Party (SDP) and the leftist Seychelles People's United Party (SPUP). Immediately after independence, Sir James Mancham of the SDP became the first president and France Albert Rene of the SPUP became prime minister. The coalition unraveled after a 1977 coup by Rene that forced Mancham into exile. In 1979, the constitution of 1976 was replaced by a significantly revised one that replaced the multiparty system with a one-party state. The SPUP, renamed to the Seychelles People's Progressive Front (SPPF), became the only political party in the country. Rene was elected president in 1979 and survived several coup attempts. In a dramatic political turn, the one-party political system was abandoned in 1992 under a new constitution that restored multiparty rule and saw Mancham return from exile to lead the SDP once more. Support of the SDP gradually declined with the rise of another opposition party, the Seychelles National Party (SNP, formerly the United Opposition), led by Wavel Ramkalawan. In elections for the 35-seat legislature in 1998, the SPPF won 61.7 percent of the vote, SNP won 26.1 percent, and the SDP won only 12.1 percent. Rene also won reelection as president. Despite this political tumult, elections and transitions of power have been peaceful.

Under President Rene, Seychelles introduced a socialist economy with state control over economic activities and 5-year national development plans, though the government also sought financial assistance from England and France. The main aims of the government policy were the diversification of the national economy, development of agricultural and manufacturing industries, the production of goods for domestic consumption and for export, and increase of hard currency. Most tax revenues in the Seychelles are derived from the net income or profit of a business. This tax is paid by resident and non-resident business owners on a graduated scale that ranges from 0 percent of the first SRe24,000 of income up to 40 percent of higher levels of income. Imported products, including alcohol and cigarettes, are also taxed. In 1998 trade taxes accounted for 44 percent of total revenues.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

The Seychelles has a well-established infrastructure in the northern Mahe group of islands, but not in the remoter group of coral islands to the south. After independence, the government made considerable efforts to expand its infrastructure in order to attract upper-middle-class tourists from Europe and North America. The concentration of the population in the capital of Victoria and in the few main islands made this task easy. In 1999, the major islands were served by a network of 424 kilometers (263 miles) of roads, of which 370 kilometers (230 miles) were paved. The country restricts car ownership through an annual quota system for auto imports. It is estimated that the total number of registered vehicles reached 9,394 in 1999. None of the islands have railways, and the islands' public transportation system relies on a bus fleet.

The country has 6 airports with paved runways and 8 with unpaved runways. The international airport at Pointe Larue was opened in 1971. The national air carrier, Air Seychelles, regularly flies to Frankfurt, London, Milan, Paris, Rome, and Zurich in Europe, as well as to Dubai, Johannesburg, Mauritius, Nairobi, and Singapore. It operates a small fleet of 4 light aircraft servicing the inter-island routes and a fleet of Boeing aircraft for inter-continental flights. The islands are also served by some international air-carriers, including the British Airline, Kenya Airways, Aeroflot, Air Mauritius, and others. The main port and harbor is Victoria. The state-controlled operator uses ferries to link Mahe with Praslin and La Digue. Private schooners are also available for trips to some islands.

The Seychelles has no oil, gas, or coal resources and relies solely on imported petroleum. Only Mahe, Praslin, and La Digue islands have electricity; total power production was around 125 million kW in 1998, and there was a plan to build a new 50 mW thermal station.

Telecommunication services in the Seychelles have been under intensive reconstruction since the early 1990s. According to the local authorities, there were 19,635 telephone lines and a rapidly growing number of mobile phone subscribers (16,316 in 1999), although the CIA World Factbook lists considerably lower numbers of phone usage. The country had 1 Internet service provider (ISP) hosting 818 accounts in 1999.

ECONOMIC SECTORS

Economic development in the Seychelles is limited by its geographic isolation, lack of natural resources, and a small population. The country heavily relies on international tourism from European and North American countries. The number of tourists arriving to the Seychelles

rose steadily from the 1970s until the middle of the 1990s, and declined slightly afterwards. While employment in tourism-related industries dominates private sector employment, the largest single employer is the government, which employed 9,989 people, or 32 percent of the labor force, in 1999.

Manufacturing, which in 1999 accounted for 28.8 percent of total GDP according to Seychelles in Figures 2000, is the fastest-growing sector of the national economy, with an average annual growth rate of 4.8 percent between 1979 and 1989, while services were growing at an average annual rate of 2.8 percent. Services accounted for 68 percent of GDP in 1999, however, and employed 57 percent of the population in 1998. During the 1990s, the agricultural sector experienced a gradual decline and by 1999 contributed only 3.2 percent of GDP. Large investments into expansion of the manufacturing and other sectors led to considerable balance-of-payment deficits and foreign-exchange shortages.

AGRICULTURE

Agriculture and forestry have limited importance for the Seychelles, accounting for just 3.2 percent of GDP in 1999 and providing employment for 7 percent of the labor force (including fisheries). The country produces copra, cinnamon bark, and tea for export in very small quantities and depends on the world prices on these products. The country exported 214 tons of cinnamon bark and 236 tons of green leaf tea in 1999. However, it has to import cereals and some other foodstuff in order to meet the consumer needs of the local population and tourists. During the last few years there was an attempt to expand fruit and vegetable production for the local market. The government has also invested considerably in forestry in order to increase the country's lumber resources for domestic consumption.

Fishing is an important sector of the Seychelles economy. The country's exclusive economic zone extends 320 kilometers (200 miles) beyond its coastal area, which provides control of over 1 million square kilometers (386,100 square miles) of the Indian Ocean. The local population is engaged in catching fish for local consumption and for export while the government benefits from licensing fishing in its territorial waters and from payments by foreign vessels. In 1987 the first tuna-canning factory was opened in the country. Exports of canned tuna have been growing steadily, from SRe169 million in 1996 to SRe541.5 million (US$102 million) in 1999. The prawn-producing sector expanded rapidly in the early 1990s with its exports reaching SRe34.1 million (US$6.5 million) by 1998. Liberalization and opening of the country's economy attracted some foreign investments in the 1990s. In 1995 the U.S.-based H. J. Heinz Company established control over the tuna-processing plant and pledged US$15.4 million in investments and 900 jobs.

INDUSTRY

The industrial sector in the Seychelles is small and domestically oriented, accounting for 28.8 percent of the GDP and providing employment for 23 percent of the labor force in 1999, according to Seychelles in Figures 2000. During the 1980s the government heavily invested in the manufacturing sector, and by 1999 the country was producing beer (6,000 tons), soft drinks (10,500 tons), cigarettes (70 million), and some other consumer products.

Mining has played an insignificant role in the national economy, although some experts believe that the seabed around the Seychelles is rich in various natural resources. However, the current development technologies do not allow exploration or extraction of these natural resources that could yield commercially viable profits.

SERVICES

TOURISM.

Since the 1970s, tourism has dominated the national economy as its single most important sector, providing direct employment (hotels and restaurants) for 3,829 people or 12.4 percent of the workforce, according to Seychelles in Figures 2000. Including secondary employment, these figures rise to 9,797 people or 32 percent of the workforce. In 1998 an estimated 128,000 tourists visited the country, contributing SRe584 million (US$111 million) to the economy. The island nation offers a total of over 4,700 hotel rooms. The Seychelles promotes itself as the "Dream Destination," offering up-market services to international visitors seeking the charms of a tropical island paradise, mainly from France, Germany, and Britain. The government plans to redefine the national tourism strategy in 2001.

FINANCIAL SERVICES.

The services sector was controlled by the state throughout the 1980s, until the economic and financial liberalization in the 1990s. The Central Bank of Seychelles (CBS) is fairly efficient according to international standards, although it lacks independence from the government. The largest local bank is the Development Bank of Seychelles. In 1999 there were also 4 international banks in the country: Barclays Bank (UK), Banque Française Commerciale-Ocean Indien (France), Bank of Baroda (India), and Habib Bank (Pakistan). In 1995 the government established the Seychelles International Business Authority (SIBA) and opened the Seychelles International Trade Zone (SITZ) in an attempt to develop the country as an international "offshore" financial-services center.

RETAIL.

The retail sector is developed to meet the demands of foreign tourists. This sector is dominated by small and medium-sized retail shops where visitors and local consumers can buy a wide variety of products and souvenirs.

INTERNATIONAL TRADE

The Seychelles' international trade has fluctuated considerably after the country achieved independence in 1976 due to its sensitivity to world prices and economic conditions in main trade-partner countries. The country incurs trade deficits because it imports all machinery and

equipment, and a wide range of consumer goods, including foodstuffs, and fuel. The government addresses the problem by imposing certain restrictions on imports through the Seychelles Marketing Board (SMB) and by promoting self-sufficiency.

The country's economy is so small that the construction of even a single plant or hotel might significantly improve the country's statistics: the opening of a tuna-canning plant in 1987 boosted exports by 160 percent. Britain is the Seychelles' traditional primary trading partner, followed by France, Germany, and South Africa. In 1998 exports reached US$91 million, while imports reached US$403 million. The trade balance deficit was US$312 million. The Seychelles' government is working to improve the current-account balance deficit with assistance from the IMF.

MONEY

The Seychelles rupee has been remarkably stable since 1979, when it was linked to the IMF's special drawing rights (SDR). This fixed link was abandoned only in 1997 in favor of a free exchange rate. The exchange rate for the Seychelles rupee rose slowly from 4.762 per U.S. dollar in 1995 to Sre5.306 in 1999. The average rate of consumer inflation was around 6.5 percent in 1999, compared to 2.6 percent in 1998.

POVERTY AND WEALTH

The Seychelles has one of the highest standards of living when it is compared to countries in continental Africa. In 1999 the GDP per capita was equivalent to US$7,500 (estimated at purchasing power parity). During the first 2 decades after independence in 1976, the government attempted to reduce social polarization through state control over economic activities and by creation of the parastatals. Education has been accessible to the majority of the population, and the literacy rate is 84.2 percent. However, since the middle of the 1990s there has emerged evidence of increasing diversification of incomes and social polarization.

WORKING CONDITIONS

In 1999 the Seychelles labor force consisted of 30,786 people, according to Seychelles in Figures 2000, and the unemployment rate was around 11.0 percent. The labor market is heavily regulated, which requires all those working or seeking work to register with the government. Permission from the National Workers' Union is required for all dismissals or changing of jobs. In recent years, however, there has been some liberalization of the labor market, especially in conjunction with the opening of the Seychelles International Trade Zone in 1995. The government-controlled parastatals traditionally provided employment for almost half of the economically active population, although their role decreased in the late 1990s. Independent trade unions have been allowed since November 1993.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1756. France takes over the uninhabited islands.

1814. Great Britain establishes control, administering from Mauritius.

1903. The Seychelles become a Crown Colony.

1964. The socialist-oriented Seychelles People's United Party (SPUP) is established.

1976. Republic of Seychelles declares its independence within the Commonwealth. The first constitution is introduced.

1976. Sir James Mancham of the right-center Seychelles Democratic Party (SDP) becomes president.

1977. France Albert Rene stages a coup.

1977. The SPUP is renamed the Seychelles People's Progressive Front (SPPF).

1979. Second constitution is introduced, making the Seychelles a one-party political system; Rene is elected president; Seychelles rupee is linked to the IMF's special drawing right (SDR).

1981. Attempted overthrow of socialist government by mercenaries disguised as tourists.

1985. The first 5-year National Development Plan (NDP One) is introduced.

1986. Attempted coup by former Minister of Defense.

1991. Return to multiparty political system.

1993. Third constitution is adopted; Mancham returns from exile after legislative elections.

1995. Economic Development Act (EDA) introduced in attempt to attract offshore financial services; establishment of the Seychelles International Trade Zone (SITZ).

1997. Abandonment of the fixed link between the Seychelles rupee and the IMF's special drawing right (SDR).

1998. Rene and his supporters win in legislative elections.

FUTURE TRENDS

Despite the steady economic growth since the 1970s, and the contributions of tourism to revenues, the economic future of the Seychelles is far from certain. As a niche market in the tourism industry, it has to compete with neighboring Mauritius, Madagascar, and Comoros, which offer cheaper tourist services. Decay of the barrier reefs due to global warming might lead to the erosion of many small islands. The country needs to further diversify its economy by reducing its over-dependence on the tourism sector while preserving its standards of living and its political stability.

DEPENDENCIES

Seychelles has no territories or colonies.

BIBLIOGRAPHY

Gabbay, Rony, and Robin N. Ghosh. Economic Development in a Small Island Economy: A Study of the Seychelles Marketing Board. Perth (Australia): Academic Press International, 1992.

Economist Intelligence Unit. Country Report: Seychelles. London: Economist Intelligence Unit, November 2000.

Scarr, Deryck. Seychelles since 1770: History of a Slave and Post-Slavery Society. Trenton, NJ: Africa World Press, 2000.

Seychelles International Business Authority. Seychelles: Your International Business Centre. <http://www.siba.net>. Accessed July 2001.

Statistics and Database Administration Section MISD. Seychelles in Figures 2000. <http://www.seychelles.net/misdstat>. Accessed July 2001.

U.S. Central Intelligence Agency. The World Factbook, 2000. <http://www.cia.gov/cia/publications/factbook>. Accessed June 2001.

—Alfia Abazova, MILS

CAPITAL:

Victoria.

MONETARY UNIT:

Seychelles rupee (SRe). There are coins of 1, 5, 10, 20, and 50 cents. One Seychelles rupee equals 100 cents.

CHIEF EXPORTS:

Fish, cinnamon bark, copra, petroleum products (re-exports).

CHIEF IMPORTS:

Machinery and equipment, food products, petroleum products.

GROSS DOMESTIC PRODUCT:

US$590 million (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$91 million (f.o.b., 1998). Imports: US$403 million (c.i.f., 1998).