Download The New Prime Minister`s Message: A Closer Look

The New Prime Minister’s Message: A Closer Look
24-Jan-17
Background
Sir Anerood Jugnauth (SAJ) tendered his resignation as Prime
Minister (PM) on Monday morning. Later on the same day, Mr.
Pravind Jugnauth, was sworn in as the new PM together with his
freshly reconstituted cabinet. While SAJ had announced last
September of his intent to step-down in 2017, the timing of the
resignation – which has been subject of speculation for months –
was unexpected. For a 3rd time in three years, the Mauritian PM will
also retain the Ministry of Finance. In his short televised address to
the Nation last night, the incoming PM outlined his vision for
Mauritius which is in continuity with his most recent National
Budget.
The message is one we are accustomed to: an inclusive growth
model in which no one is left behind. It is a Mauritian model in which
the entrepreneur is given room to thrive in a liberal economy but
accompanied by wide ranging social nets. In this context, the 2%
Corporate Social Responsibility spending requirement which had
been left to the discretion of the Private Sector, will now be
prescribed by Government policy.
Figure 1. GDP Growth
for a significant reduction in red tapes and improve permit
processing times among others. A greater shift of services onto a
digital platform would be a positive step towards restoring
Mauritius’ “Ease of Doing Business” rank back into the Top 25
rather the Top 50.
Figure 2. Ease of Doing Business Ranking
Construction
Mr. Pravind Jugnauth reiterated his intent to boost Construction
through major infrastructure projects citing investments of Rs30bn
over the next three years. Key projects include the start of works
on the ”Metro Express” which will link the Plaines-Wilhems to
Port-Louis by rail; a new bridge to link Beau-Bassin directly to the
Motorway at Soreze; a new flyover at the highly congested Phoenix
roundabout, and a complete revamping of Public Transport hubs to
include shopping centres as is in developed countries. In addition to
upgrading transportation, he also announced the construction of an
“Olympic Grade” sports complex at Côte d’Or in time for the 2019
Indian Ocean Island games. This reinforces our view of upbeat
prospects for building materials companies, i.e. UBP and GAMMA
during 2017.
Openness
The new PM emphasised the need to boost economic momentum
through an “open economy” open to both foreign and local talent.
He further cemented his point by stating that he would not tolerate
“throwing monkey wrenches”. This sends a positive signal for our
liberal economy in times when populism and protectionism – which
would hinder cross-border exchange of goods and services – are
on the rise in both USA and Europe.
This sends an excellent signal – further cemented by his statement
that he would not tolerate “throwing monkey wrenches” – for our
liberal economy in times where both the USA and Europe are
witnessing increasing populism and shift towards protectionist
policies hindering cross-border exchange of goods and services.
Transformation
The new PM reiterated his budgetary objectives to transform the
agriculture, manufacturing as well as financial sectors for a better
tomorrow. His focus is to aim for higher value added
manufacturing/services and to expand/diversify trade within the
region. A linchpin policy is the need to “digitise” Mauritius aiming
Figure 3. Construction Sector GDP growth
Tourism
The new PM said an appropriate air connectivity policy would
remain so as to boost diversification of our markets. This is another
positive signal given that tourist arrivals figures have demonstrated
that improved connectivity is directly proportional to higher
occupancy rates which in turn enables rate increments. Having
stated he would encourage hotel developments and new product
offerings following a moratorium on new hotels, suggests that the
outlook for Tourism is promising. We are therefore upbeat on
hotel counters LUX, SUN and CHSL in spite of refurbishment
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The New Prime Minister’s Message: A Closer Look
24-Jan-17
costs and high levels of debt weighing down on profitability. While
NMHL is also expected to perform well domestically, its Moroccan
property development is selling at a slower pace than originally
anticipated, and its declared intent to hire an international player to
run Royal Palm Marrakech suggests the group has found it difficult
to adapt in a non-tour operator centric environment.
into a hub would help boost regional trade through a reduction of
shipping times and freight charges. Companies like VEM would
benefit from bunkering and its ability to refuel specialised seavessels such as oil rigs; while logistics/freeport operators such as
MFD or Velogic (Rogers) would also be expected to benefit from
increased volumes.
Figure 4. Tourism Sector GDP Growth
Figure 6. Logistics GDP Growth
Public Utilities
Synthesis
Last night’s remarks signal continuity with his most recent National
Budget. In its first year in office, this Government reviewed policies
it inherited from the previous administration but was also marred
by some public spats between cabinet members, one of whom
chose to decline a cabinet position under the new Premier. SAJ’s
decision to step-down – paving the way for younger leadership and
Mr. Pravind Jugnauth’s ascension to the Premiership – nonetheless
marks the end to a two-year spell dogged by speculation and
uncertainty.
Figure 5. Electricity & Gas GDP Growth
In addition to massive spending to improve the transportation
infrastructure, the PM announced that Government would be
spending Rs52bn on improving public utilities: Rs25bn for increased
electricity production mainly from renewables, and Rs28bn to
replace leaky water-pipes. Resolving the issue of sporadic daily
water distribution and ensuring that power generation capacity
exceeds demand are important elements which will give impetus to
economic growth. With a push towards renewables it is unclear
how existing Independent Power Producers (IPPs) such as OMNI,
TERRA and ALTEO can seize the opportunity. In fact, the Stock
Exchange of Mauritius, could be a wonderful place to raise capital
for new IPPs focusing on renewables and to push the argument
further, opening up the shareholding of public utility companies –
and even other parastatal bodies – to the general public through a
listing would a great way to part finance the revamp in exchange for
investment in companies with strong subscriber base and
predictable returns.
Port Infrastructure
Markets prefer certainty – a state of affairs – which this re-shuffled
cabinet under fresh leadership is poised to deliver despite the
uncertain times ahead plagued by a “hard” Brexit, a Trump
Presidency and upcoming elections in Netherlands, France &
Germany. Should this administration deliver on its renewed
promises, we expect prospects for the domestic Bourse – which
broke out of a two-year long bear-run shortly after July’s National
Budget – to remain positive.
Figure 7. 5Y Market Performance
The new PM stated that Rs13bn would be injected into the port to
improve its infrastructure. It is our understanding that the Mauritian
port is avoided unless a stop is required to off-load/on-board
merchandise or to refuel. Modernising the port and transforming it
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The New Prime Minister’s Message: A Closer Look
24-Jan-17
Disclaimer
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consideration of the investment objectives, financial situation or
particular needs of any individual recipient. Recipients should not
act or rely on any recommendation in this document without
consulting their financial adviser to determine whether the
recommendation is appropriate to their investment of this
document.
This document is not, and should not be construed as, an offer to
sell or the solicitation of an offer to purchase or subscribe for any
investment. This document has been based on information obtained
from sources believed to be reliable but which have not been
independently verified.
Authors
Bhavik Desai
Head of Research
Prerna Cheekhooree
Research Analyst
Alexis Corson
Investment Analyst
Melvyn Chung Kai To
Head of Trading
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or completeness. AXYS Stockbroking Ltd and its officers, directors
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