Download 2015 Quarter 1 MAURITIAN SNAPSHOT

MAURITIAN
SNAPSHOT
2015 Quarter 1
Inflation - According to Statistics Mauritius, consumer price index (CPI) inflation increased for a third consecutive month in March to 2.2% y-o-y last month,
compared to 2% y-o-y in February. On a monthly basis, the CPI decreased by 0.5% in March, after increasing by 2.6% in the preceding month.
Growth - Preliminary data published by Statistics Mauritius indicates that the Mauritian economy grew by 3.7% y-o-y in the final quarter of 2014, following
the revised 3.6% y-o-y recorded in the preceding quarter. On a quarterly basis, the economy expanded by 0.6% q-o-q in Q4 2014, identical to the growth rate
in Q3 2014.
National development plan - The Mauritian economy has benefited from effective, market orientated policies that have encouraged the development of a
strong and vibrant private sector, while the government only plays a supportive role in economic development. This has resulted in widespread economic
development, with numerous sub-sectors showing commendable growth prospects.
OPPORTUNITIES
STRENGTHS
Using Mauritius as a base to expand and invest in the rest of Africa and in
Asia.
Foreign direct investment (FDI) into 'emerging' sectors such as medical
tourism and information & communication technology (ICT).
The most accommodative business environment in Africa, with high levels of
economic freedom and low tax rates.
Services sector will continue to be the main driver of economic growth.
Well developed, profitable, and stable financial sector.
Macroeconomic policies are transparent and market-oriented.
Large concentration of middle- and high-income earners presents opportunities Low level of political risk, which is expected to continue to be the case over
for consumer-oriented industries.
the medium to long term.
VULNERABILITIES
WHAT IS BEING DONE?
Exposure to struggling euro zone economy. Over 50% of exports are destined
for Europe, while the continent accounts for around two thirds of tourist
arrivals.
Mauritian rupee moves in step with euro/dollar exchange rate. Weaker
euro/dollar exchange rate will tend to weaken rupee/dollar rate, but strengthen
the rupee/euro, making exports less competitive and imports more costly.
The government is actively trying to diversify export and tourism markets
towards Asia and Africa; the central bank has offered a line of credit in foreign
currencies to struggling exporters.
The Bank of Mauritius (BoM) launched Operation Reserves Reconstitution in
June 2012, whereby it will attempt to build up a larger buffer of foreign
exchange reserves.
The government is implementing prudent policies. In the corporate sector,
some companies have the opportunity to make use of the current policy
environment to consolidate their liabilities.
The economy is relatively diversified, and has been fairly resilient to external
shocks over the past few years.
Indebtedness of the public sector, corporate sector, and households.
The small size of the economy means it is exposed to external shocks. In
addition, the exports/GDP ratio is low in an international context.
MEGA TRENDS
Population
1,331,155 (July 2014 est.); Age 15 - 64: 70.5%
Population growth rate (%)
0.66% (2014 est.)
Life expectancy at birth
Total population: 75.17 years; male: 71.71 years; female: 78.81 years (2014 est.)
HIV/AIDS
Adult prevalence rate: 1.1%; People living with HIV/AIDS: 9,635 (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 90.6%; male: 92.9%; female: 88.5% (2015 est.)
and write)
Urbanisation
Urban population: 40.0% of total population (2013); Urban population growth: -0.1% (2013)
Population below poverty line
9.4% (2012 est.)
Unemployment rate
8.6% (2013 est.)
Employment (% of total)
Agriculture: 7.8%; Industry: 27.6%; Services: 64.7% (2012 est.)
Labour participation rate (% of total
population ages 15+)
58.6% (2013)
Business languages
Creole, French, English
Telephone & Internet users
Main lines in use: 363,000; Mobile cellular: 1.53 million; Internet users: 519,150 (2013)
Sources: CIA World Factbook, World Bank, UNESCO, UNDP, ITU, UNAIDS, Stats Mauritius & NKC Research
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Total
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
Economic Freedom 2015 (1 most, 178 least free)
HDI Ranking 2013 (1 most, 187 least developed)
175
47
189
28
39
10
144
178
187
63
0
Source: NKC Research
Mauritius
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
S&P
Fitch
Moody’s
N/R
N/R
Baa1/Stable
Moody’s Investors Service’s most recent rating action on Mauritius was an upgrade to the sovereign’s credit rating by one notch to “Baa1” (equivalent to
“BBB+”) with a stable outlook on 26 June 2012. More recently, the agency provided an “annual update to the markets” on 27 June 2013, in which the
country’s main sovereign debt risks and strengths were discussed. According to the press release, the island nation’s “Baa1” rating “reflects the demonstrated
resiliency of the economy and public finances to shocks, the government's pragmatic policy-making, and the stable and investment-friendly environment,
which encourages foreign direct investment (FDI)”. The economy’s resilience stems from the country’s strengthening institutional framework, which is
expected to assist the economy and the fiscal sector in circumventing the protracted negative impacts of any shocks emanating from Europe (Mauritius’s
largest trading partner). The government’s financial strength is assessed as moderate, due to Mauritius having higher levels of debt than its peers, although the
country has exhibited positive debt dynamics. On the political front, Moody’s regards the country’s political risk as low, given the well-established democratic
institutions in Mauritius.
Mauritius is currently not rated by Standard & Poor’s (S&P) or Fitch Ratings.
Infrastructure
Diversity of the
Economy
Banking
Sector
Continuity
of Economic
Policy
GDP Growth
Relatively
diversified; services Well developed Good and stable
Average
(in African context)
sector dominates
and stable
policies
GDP
Good
Key Balances
Foreign
Investment
Socioeconomic
Development
Forex
Reserves
Twin deficits
Fair
High
Adequate
Daily Trading
Volume
$160,909
(SEM, Apr 20)
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Stock Exchange of
Mauritius (SEM)
85
Average
$6.011bn
(SEM, Apr 20)
Banks & other financials
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
91 days to 20 years
N/a
Under-developed
Yes
Well developed in African Limited; secondary bond
context
market under-developed
Macro-economic overview
From an economic perspective, one of the main challenges facing Mauritius is its strong trade and investment ties with Europe. The economic turmoil in the
region has directly affected Mauritius as reflected by subdued GDP growth figures in recent years. While the government is actively undertaking
diversification measures directed towards Africa and Asia, the island nation’s economic performance will remain largely interlinked with Europe for some
time. Another source of downside risk to Mauritius’s economic outlook is the highly indebted private sector, with private liabilities accounting for the majority
of the country’s external debt. The uncertainty created by the difficulty in determining the country’s actual short-term external debt is a salient source of
external risk.
On a more positive note, the majority of the island nation’s economic fundamentals remains sound, while a credible central bank and prudent fiscal authorities
promote monetary and fiscal stability. Mauritius is expected to strengthen its position as a gateway into Africa and Asia, which will contribute in a beneficial
manner to the country’s external accounts. Furthermore, the country’s business environment continues to shine brightly relative to those of its African peers.
According to the World Bank’s latest Doing Business index, Mauritius is ranked 28th out 189 countries – making the island nation the best ranked country in
the index in Africa by a considerable margin, with South Africa placing second with an overall ranking of 43rd and Rwanda coming in third on the continent
with an overall ranking of 46th. Similarly, Mauritius obtained the highest ranking among African countries in the Forbes Best Countries for Business 2014
annual survey, placing 34th out of 145 countries. Mauritius ranked particularly well in the trade freedom and tax burden categories, placing 5th and 13th,
respectively. On the other hand, the island nation’s worst performance was in the innovation and monetary freedom categories, with the country ranked 74th
and 67th, respectively.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
3.3%
Industry/GDP
24.0%
Service/GDP
72.7%
Although the agricultural sector’s contribution to GDP has fallen markedly over the last few decades – from over 15% of GDP in the 1980s to an estimated
3.3% of GDP last year – the sector remains a driver of job creation and foreign investment opportunities, with the sugar industry of particular importance.
More recently, the services industry has become the main driver behind GDP growth, with the sector expanding by an average of 4.3% of the 2010-14 period,
and contributing an estimated 72.7% to GDP last year. In turn, the industrial sector contributed an estimated 24% to GDP in 2014, with the sector dominated
by manufacturing, particularly food processing and textiles, while the construction sector is now losing some momentum following numerous years of strong
growth.
Real GDP Growth & Net FDI/GDP
5.0
6.0
Source: NKC Research
5.0
4.0
4.0
3.0
3.0
2.0
1.0
2.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
Mauritius’s strong economic ties to Europe make the country highly dependent on the economic performance of the European region. Ongoing poor
performance of the euro zone, despite extensive stimulatory efforts by the European Central Bank (ECB), directly affects Mauritius via lower export demand
and foreign investment inflows. Nevertheless, the Mauritian economy is still estimated to have grown by 3.4% last year, and is projected to expand by 4.1% in
2015, before accelerating to 4.6% next year on the back of a recovery in Europe while trade and investment diversification efforts toward Asia take hold. With
regard to FDI, preliminary data from the Bank of Mauritius (BoM, the central bank) shows that FDI inflows recorded strong figures during last year. Total FDI
inflows reached almost Rs14.2bn in 2014, compared to the Rs9.5bn recorded in the previous year. The real estate sector was main the foreign investment
drawing card in Mauritius last year, attracting some 43.7% of the total FDI received. The accommodation & food service activities sector followed closely,
receiving 34.6% of total FDI.
Exports ($ bn)
Imports ($ bn)
2014E
2015F
2016F
Mineral fuels, oils & distillation products
Electrical, electronic equipment
Main Imports: % share of total
2014E 2015F
2016F
Mineral fuels, oils & distillation products
19.25
19.85
20.55
Electrical, electronic equipment
10.23
9.97
10.57
Machinery & boilers
7.01
6.57
6.85
Fish, crustaceans, molluscs & aquatic
invertebrates
5.20
5.07
4.86
Machinery & boilers
Fish, crustaceans, molluscs & aquatic
invertebrates
Articles of apparel, accessories
Fish
Main Exports: % share of total
2014E 2015F
2016F
Articles of apparel, accessories
26.79
26.68
26.28
Fish
23.42
24.55
24.63
Sugars & sugar confectionery
9.23
8.19
7.80
Pearls, precious stones, metals & coins
5.01
4.87
4.73
Sugars & sugar confectionery
Pearls, precious stones, metals & coins
Source: NKC Research
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
Total exports from Mauritius during Q3 2014 amounted to Rs23.3bn, representing an increase of 17.2% compared to the same period a year earlier. According
to Statistics Mauritius, the increase stems primarily from a significant jump in telecommunication equipment & accessories, which increased from Rs422m in
Q3 2013 to almost Rs3.5bn a year later. The largest recipients of Mauritian goods during Q3 2014 were the United Arab Emirates (UAE), followed by the
United Kingdom (UK) and the US. On the other side, imports by Mauritius increased by 8.4% y-o-y to Rs45.6bn in the third quarter of 2014, largely due to
increased imports of food & live animals, as well as machinery & equipment. Consequently, Mauritius recorded a trade deficit amounting to Rs19.3bn during
the third quarter of 2014, representing a widening of 1.5% from the deficit recording during the commensurate period in 2013. Looking ahead, there may well
be an improvement in the country’s trade dynamics, given that the price of Brent crude oil was down by about 58% y-o-y by mid-January 2015, and that oil
imports accounted for almost 20% of total imports last year. With regard to the source of imports by Mauritius during Q3 2014, India provided the most
goods, followed by China and France.
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Current Account & Budget Balance
(% of GDP)
-6.0
-1.5
-8.0
-2.0
-10.0
-2.5
-12.0
-3.0
-3.5
-14.0
Source: NKC Research
-16.0
-4.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
Looking at the external accounts, Mauritius recorded surpluses in both the services and current transfers accounts in 2014. According to the central bank, a
surplus of Rs28.8bn was recorded in the services account last year, compared to Rs21.5bn in 2013. The current transfers account saw an incremental increase
in its surplus, rising by just over 1% to Rs2.8bn. However, a widening of the Mauritian trade deficit during the commensurate period from Rs36.2bn in 2013 to
Rs39.6bn in 2014 saw the country retain its deficit on the current account last year. More specifically, the island nation’s current account deficit widened by
9.4% from Rs36.2bn in 2013 to Rs39.6bn last year.
With regard to recent fiscal developments, the Mauritian minister of finance & economic development, Seetanah Lutchmeenaraidoo, delivered the country’s
2015/16 fiscal year (FY, July 1 to June 30) budget speech on March 23. Mr Lutchmeenaraidoo outlined an ambitious fiscal plan for the coming year, which
aims at promoting high investment and employment, sustainable development, social justice, and good governance. Total fiscal revenues are budgeted at
Rs90.8bn, of which tax receipts will contribute around 85%. In turn, fiscal expenditure is set to be compromised of recurrent expenditure amounting to
Rs93.6bn and capital expenditure totalling Rs12.6bn. According to calculations done by the Mauritian government, this is projected to translate to a fiscal
deficit of 3.5% of GDP for the 2015/16 FY.
Average CPI (% change, y-o-y)
7.0
Source: NKC Research
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
As a result of the continuing low inflationary pressure, the central bank’s Monetary Policy Committee (MPC) decided to maintain its benchmark lending rate
at 4.65% at its most recent meeting in April. The committee noted some concern about the Mauritian rupee’s recent weakness (the rupee has depreciated by
14.5% y-t-d against the US dollar), while also indicating cognisance of the recent fiscal budget statement that is expected to provide an impetus for economic
growth. Although the outlook for a low inflation environment (the central bank expects CPI inflation to average around 3% this year, compared to our
projection of 4%) provides some breathing room for the central bank, allowing the monetary regulator to maintain its accommodative policy stance. However,
the MPC will have to tighten its stance at some point, lest there be an increase in risks to financial stability, as well as in order to address the country’s low
domestic savings rate.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Jean Claude Liong – designation is Partner
Tel +230 406 9990; +2304069889
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
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such information or opinions.
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