Economic puzzle: Investments trapped in bearish territory

Investments in 2016 would reach Rs 76.6 billion, representing an increase of 7.7 per cent, according to figures form Statistics Mauritius. It is expected that investment rate would reach 17.5% of the country’s Gross Domestic Product this year, roughly the same level as the 17.4 per cent recorded in 2015.

This rather sluggish pattern is worrying for the country given that the construction sector has a multiplying effect on the economy and an upswing demonstrates positive sentiment of investors. However, despite measures announced by the government during the Budget 2016-17, the lacklustre situation is far from improving.

According to Statistics Mauritius, “Building and construction work” is expected to rebound by 2.6% this year following contractions registered during recent years. Besides, “Residential building” is expected to expand by 13.3%, mainly due to high investment in housing projects. On the other hand, “Non-residential building” and “Other construction work” are forecast to contract by 3.7 per cent and 10 per cent respectively. 

The share of private sector investment is expected to increase marginally to 72.8 per cent from 72.7 per cent in 2015 – that is only 0.1 per cent – and that of the public sector, to decrease to 27.2 per cent from 27.3 per cent.

Economist Vishal Rughoobur explains that private investment is very low for the time being and the Ease of Doing Business report proves that Mauritius has considerably regressed. For him, the country needs to boost up its efforts to bounce back. 

“The measures announced in the Budget need adequate time to be implemented. For the time being not all measures have been implemented and some have been frozen. The government needs to facilitate most the projects and start implementing the announced measures to boost up investment. We are going through a crisis but with appropriate measures we can boost up private investment.”    

Business facilitation

The Budget 2016-2017 underlines various new incentives by the government in order to facilitate business and investment. The Property Development Scheme will be reviewed and the PDS regulations will be amended so as to remove the maximum size limit of 50 acres, remove the requirement to sell at least 25 percent of residential units to Mauritian buyers; and review the current maximum permissible land size for a villa, from half an acre to 1.25 acre. 

Moreover, an e-licensing platform will be set up to provide a single point of entry for applications for permits and licences. The aim is to bring down submission of documents in some cases from around 48 copies to just one copy. Furthermore, the Investment Promotion Act will be amended to authorize the BOI to issue the necessary clearances and approvals for a business to start operation in cases where the statutory deadlines for processing applications have lapsed. Additionally, the government is coming forward with the concept of a Regulatory Sandbox Licence (RSL) which will allow companies to invest in innovative projects within an agreed set of terms and conditions, even in the absence of a formal licensing framework.

In the context of strengthening the African strategy, concrete progress has been with Senegal, Madagascar and Ghana for the establishment and management of Special Economic Zones. 40 hectares of land have already been allocated by the Government of Senegal. A consulate in Reunion Island will facilitate trade and business relationships. Seven Counsellors (Economic Matters) will be recruited in addition to those already serving in Paris, New Delhi and Johannesburg.

In the context of the opening up of the economy to foreign investors, the scope of the criteria for registration as an investor is being extended as follows:

• an investor must have an annual turnover of at least Rs 4 million in each of the three years for which an occupation permit is granted to him 
• Investors who were already operating in Mauritius but not registered with the Board of Investment for a period of at least three years preceding an application for Occupation Permit will be able to do so provided the net asset value of their business is at least USD 100,000 and the cumulative turnover for the last three years was at least Rs 12 million with a minimum of at least Rs 2 million in any one year
• Similarly, applicants under the investor category who have inherited a business, in case of death or incapacity of the previous investor, can register with the Board of Investment provided the net asset value of the business is at least USD 100,000 and the cumulative turnover for the last three years was at least Rs 12 million with a minimum of at least Rs 2 million in any one year.

Private projects announced for 2016

In December 2015, the Investment Fast Track Committee approved 50 projects amounting to Rs 68 billion:

Medine Smart City 

This is an Educational Village which will house private universities and schools, surrounded by housing developments, shopping centres and sports complexes. Cost: Rs 5 billion.

Deep Ocean Water Application

This project concerns the pumping of deep sea water from a depth of 1,000 metres for use in air conditioning of buildings in the capital. Cost: Rs 4 billion

Roches Noires Smart City

This project includes the construction of a 300-room hotel, apartments, villas and shopping malls. Cost: Rs 3 billion.

St. Felix Smart City

Another Smart City with residential units commercial spaces and leisure centres. This project includes a university specialised in oceanography and a hotel. Cost: Rs 2 billion.

Haute Rive Holdings Ltd

Part of the Master Plan Azuri, the project includes residential, commercial, educational, medical, and recreational zones. Cost: Rs 2 billion.

Mont Choisy Smart City

Mont Choisy Smart City project involves the construction of 1,303 residential units including a ‘retirement village’ of 383 units and a solar farm. Cost: Rs 1 billion.

Pharmaceutical Village

A Pharmaceutical Village will be set up at Rose Belle to cater for local as well as African markets.

Port Infrastructure

As regards the sea port, Rs 6 billion will be invested over the next 5 years to enhance port infrastructure.

Metro Express

Rs 7.2 billion was announced as part to finance the metro Express project.

Importance of investment in the current economic situation

MCCI Economic Outlook: “Public investment required”

According to the MCCI Economic Outlook 2016-2017 report released last September, investment is an essential element to improve productive capacity, transform the economic structure and create jobs. The report explains that “for Mauritius, an economy in transition aspiring to reach the next level of development, the minimum required, according to economic literature is an investment rate of 25 percent.” 

However, the Economic Outlook underlines that “since 2008, the level of investment has steadily decreased from around 26 per cent in 2009 to 17.5 per cent of GDP in 2015.” The MCCI has thus noted that investment has been contracting since 2012.  Moreover it highlights that the “trend has intensified over the last two years with negative growth rates of -6 percent in 2014 and -5.2 percent in 2015.” 

According to the MCCI, there is thus the need for public investment. “For there to be a continued recovery in economic activity when in a slack period, the Keynesian concept advocates that a boost to consumption be accompanied by an increase in public investment. These investment will trigger higher demand for capital goods, which therefore will encourage suppliers of those goods to improve their supply and thus in turn, increase investments to meet this additional demand. By snowball effect, it will boost economic activity, boost employment, dividends and consumption, hence resulting in a further increase in investment.”

For the MCCI, the government’s decision to increase public sector investment by more than 100 per cent for 2016-2017 fiscal “is justified and will have a positive impact on total investment.” However, the report points out that the lack of strong demand since the beginning of the crisis has significantly affected the investment capacity of the private sector. “Entrepreneurs have resorted to significant decrease in their prices in order to withstand declining consumption, causing a disinflationary phase. The cumulative decline in private investment between 2012 and 2015 is over 13 percent and the private investment recovery in the short and medium terms will depend on the level of the increase in consumption.” What does the MCCI expect in terms of investment growth? “After significant decrease in investment in 2014 and 2015 with negative growth rate of -6 percent and -5.2 percent respectively, we thus expect an investment growth rate of -4 percent in 2016 and -2 percent in 2017.”

Rajiv Seervansingh: “We are now in a transition era”

According to economist Rajiv Servansingh, the principle cause of sluggishness in the economy is “the fact that we are now in a transition from an era of protection and preferential access to markets into a more competitive world where there is less visibility and predictability for investors.” For him, Mauritius has done very well in the past with an established framework of public private partnership and based on our guaranteed markets and presences.

However, he underlines that “the breakdown of this model since the end of the last century has not been followed by a new set of measures, innovation, and business culture to cope with the new environment.” He adds that “it is a fact that investments in Mauritius have declined from around 26% of GDP abour 10-12 years ago to nearly 15% presently.” What would happen if investments stall? Rajiv Seervansingh trusts that if the present trend continues, “the socio-economic stagnation which we have witnessed over the past years with economic growth stalling around 3.5%, the social and economic problems are bound to get worse. Unemployment, inequality and the general breakdown of the law and order will persist and probably get even worse.” He believes that “Mauritians are aware that in order to break up the present vicious circle, we need a GDP growth of 5.5% to 6% annually.” Nevertheless, he points out that past experience tells us that “for such a rate of growth, we would need a rate of investment between 25% and 30% GDP.”

Investment growth rates 2013-2016

What measures can be taken to bring around more investment? “The first and probably easier actions that can be taken would be for government to increase investments in public infrastructure such as roads, port, social housing, and transport among others. It is understood that the government is planning to launch several such projects in the coming years.” He states that as regards to private investments, “the recent instability and division in government have certainly been a contributory factor which has impeded private investments.” Rajiv Seervansingh explains that the second measure would be “for the government to reestablish a more open and transparent working relationship with the private sector in order to enhance private investment in the country.”