Local economy in “wait and see” mode

As the world braces to bear the brunt of the adverse economic situation unfolding across international markets, Mauritius is in “wait and see” mode. There are little signs of a spillover as at now according to stock brokers News on Sunday contacted. The IMF stated, in the latest issue of its World Economic Outlook, that most countries in sub-Saharan Africa will see a gradual pick-up in growth, but only to rates lower than those achieved during the past decade. Growth figures for the Mauritian economy have been reviewed downwards by Statistics Mauritius in December. GDP is forecasted to be around 3.9% for the calendar year 2016, lower than the initial figures. The assumptions for this rate are that manufacturing would expand by around 2.5%, based on expected diversification of markets and an increase in the production of SMEs. Secondly, the construction sector to expand by 2% after the contraction of -4.3% in 2015, assuming pick up of construction activities. Concluding its Article IV consultations for Mauritius in December 2015, the IMF mission stated: “The main challenges for 2016 and beyond pertain to reducing public debt through a growth-friendly and pro-poor medium-term fiscal consolidation effort; further increasing the resilience of the financial sector by strengthening the macro-prudential oversight framework; and addressing the reforms needed to transition to high-income status, in particular with a view to improving productivity and competitiveness.” According to the IMF, to reach growth rates close to 4% in 2016, the country will have to implement the new public investment programs which would catalyse private investment, with inflation below 3%. However, there is little certainty when it comes to the implementation of announced projects, such as port and airport extension, smart cities, Ebene administrative Heritage City, and infrastructural projects. This gives rise to much apprehension among analysts. The Stock Exchange of Mauritius (SEM) Index has been on the rise this week. However, it is hard to pinpoint the underlying reason for this rise. “It is highly atypical. Most of the purchases were done by local investors and there are very few foreign purchases on the market at the moment,” one analyst who did not want to be identified told us. He added that Mauritius is not witnessing divestment from foreigners as was the case for most of 2015. “However, should foreign investors choose to exit emerging markets – of which Mauritius forms part – then surely, there will be an adverse impact. Last year, we had lots of divestment from foreigners and it would be hard to gauge what the little investors we have left would do.” “Uncertainty” is the word which comes up most often when it comes to the outlook for the Mauritian economy. Most specialists say that it is hard to assess what the performance of the economy would be like. “The government has announced many projects. Yet we do not know which of those would materialise and when. I have little confidence in those projects being realised this year. If those projects such as the Port Louis Smart City and port extension were started this year, then, the construction sector will pick up again. However, there is no certainty,” says a stockbroker. When it comes to potential spillovers, the situation in China is not particularly affecting the SEM given that the reasons for the rout on Chinese equities are mostly indigenous ones, says an analyst we reached on the phone. The most important ones being: a drop in the Purchasing Managers’ Index, removal of circuit-breakers, and lower economic growth rate. China being one of the biggest importers, any drop in its commodity purchases will adversely impact on commodity exporting countries. This uncertainty also affects the offshore sector. According to another stockbroker working for one of the major groups in Mauritius, a redraft of the Double Taxation Avoidance Agreement between Mauritius and India is yet to be finalised. “As at now, we don’t know what the revised DTAA will contain. If we lose this agreement, it would be a serious blow to our offshore sector. We would definitely feel its impact on the economy,” he says.

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