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2016: Decisive year for the economy

2016: Decisive year for the economy
Very few governments might have been confronted with the high expectations that faces the current Lepep administration. Backed by electoral promises to usher in a “second economic miracle” under the primeministership of Sir Anerood Jugnauth, expectations were set high. As a result, there is increased scrutiny regarding their performance in addressing economic woes. Setting aside the political implications, there is a dire need to redress the economy. Mauritius has performed below its potential when it comes to economic growth. According to estimates by the International Monetary Fund, our country's optimum growth rate is at around 6%. However, in 2015, the country did not perform better than 3.4% that is, less than 60% of its capacity. Numerous factors explain that, the global economy is still struggling to recover; China and emerging markets' lesser than expected growth figures; and Europe still recovering from the unemployment and sovereign debt crises. On the local front, tourism had an excellent year with arrivals crossing the one million mark. However, same cannot be said of other sectors. Construction experienced its fourth straight year of contraction, down 4.3% in 2015. Figures for previous years are: 2012 (-3%) 2013 (-9.4%) and 2014 (-8.5%). At industry level, the main growth figures for 2015 as per Statistics Mauritius are:
  1. Sugarcane: negative growth of -8.2% based on a production of 370,000 tonnes of sugar.
  2. Manufacturing: growth of 1.5% mainly explained by lower performance of sugar milling (-7.6%) and textile manufacturing (-1%).
  3. Construction: decline of -4.3% (explained by delays in the implementation of both major public and private projects).
  4. Tourism industry: growth of 8.6%, (based tourist arrivals of 1,140,000).
These figures are tell-tale signs that the underlying economic fabric is not in good shape. Added to that is the divestment from foreign investors from the Stock Exchange of Mauritius, worth Rs 4.3 billion, over the year. Note: this was mainly due to foreign institutional investors disengaging from emerging and frontier (Mauritius' case) markets. FDI have nosedived during the year, standing at Rs 7.2 billion as et end-September. Compared to figures for the past five years, 2015 might be the worst year in terms of direct investments in the country. The largest chunk of FDI is targeted at IRS/RES/IHS schemes, Rs 5.2 billion. Job creation has been another challenging area for the government. Unemployment stood at 7.8% during the year and the unemployed graduate problem has not be resolved. Therefore, 2016 comes across as being a decisive year for the economy. The lacklustre performance of 2015 could be a thing of the past provided the projects and measures announced take shape. If the major infrastructural works announced, such as smart cities, road works, hotel construction and new Heritage city at Highlands are kickstarted during the year, the construction sector might get back to positive territory. The multiplier effect of construction expenditure will further increase economic growth across the country. The second challenge facing the government is job creation. It is impossible for any government to solely address the unemployment issue and mop-up idle human resources through meaningful jobs. The SME sector comes across as being an ideal way of solving this issue, and the government has announced wide-ranging measures to support this sector. Coupled with market access, through trade facilitation such as taking advantage of the AGOA, local SMEs could well become a sound economic pillar with a diversified production base. FDI is set to reach Rs 12 billion in 2016 according to the BOI. Again, should these figures materialise with improved investments in other sectors than real estate, the economy stands to win considerably. Forecast 2016 For the coming year, GDP is forecasted to be around 3.9% by Statistics Mauritius, lesser than IMF estimates of 4% and much less than initial forecasts of 5.7% by the Finance Ministry in March 2015. However, should the announced projects materialise, growth figures could be much higher. Growth rate by industry:
  1. Sugarcane: Growth of 4.8% based on production of 390,000 tons of sugar.
  2. Manufacturing: Growth of 2.5%, based on expected diversification of markets and an increase in the production of SMEs.
  3. Electricity, gas, steam and air conditioning supply: Growth of 4.5% based on the expected increase in demand by local enterprises which are expected to increase production in 2016.
  4. Construction: Growth of 2% based on pick up of construction activities.
  5. Transport and storage: Growth of 3.4%, based on higher activities in the port.
  6. Accommodation and food service: Growth of 4.5% based on expected tourist arrivals of 1.2 million and tourism earnings of Rs 52 billion.
  7. Financial and insurance: Growth of 5.3% in line with the government strategy to attract world class liquidity providers, international broker firms, investment banks, insurance companies and fund managers.
  8. Professional, scientific and technical activities: Growth of 6.5% based on expected pick up in services allied to the construction sector.
  9. Public administration and Defence; compulsory social security: Growth 3.5% considering expected increase in the level of employment in the public sector.
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