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Executive Summary
Eye of the storm
The Mauritian economy in 2009 proved relatively resilient to the global
recession by recording a GDP growth rate of 2.2% (at market prices). The
economy derived its strength both from the bold package of policies and
reforms initiated in 2006, and from a timely fiscal stimulus. The worst
affected sectors were textiles and tourism which both recorded contractions
due to a fall in demand; and construction grew at a reduced rate because of
project delays and postponements. Country Information
Appellation: Republic of Mauritius
Lying ahead Independence/Rep.: March 12, 1968/1992
The July CSO forecast revises the GDP growth rate down from 4.3% to 4.0% Government: Westminster Dem.
in 2010. Owing to our less optimistic stance on tourism, we expect the figure President: Sir Jugnauth, A.
to be closer to 3.5%. It is possible for both Textiles and Tourism to record Prime Minister: Dr Ramgoolam, N.
slight growth due to the statistical effect of a low base, in spite of a double Suffrage: Universal, >18yrs
whammy: weakened EUR and GBP, and slower rate of recovery in the Off. & Biz. Language: English, French
Eurozone. The construction sector – boosted by a massive government
infrastructure programme (PSIP) which is facing delays – is set to grow at a Geography
subdued rate for the second straight year. The emerging real estate sector is Area: 2,040 km2
a cause for concern with the drying out of buyers for IRS/RES developments Excl. economic zone: 1.9M km2
coupled with an unsettling rush into commercial real estate. However, we Capital: Port-Louis
expect the financial sector to continue growing at a stable pace driven by Location: 20° 10' S; 57° 30' E
Time Zone: GMT +4 hrs
stable banks and global businesses. The sugar industry is expected to record
Climate: Sub-tropical
no growth with harvest at par with the preceding year.
Tel. country code: 230
Intnet country code: .mu
The current account deficit is set to widen due to decreasing export
revenue, and the re-emergence of inflation. According the last monetary
Demographics
policy committee, inflation has bottomed out and will return to its
Population: 1,275,000
historically high levels. As a result, the Bank of Mauritius kept its Repo Rate
Popn growth rate: 0.5%
unchanged at 5.75%. We believe that unemployment, which stood at 8.3% Median age: 32 yrs
in Q1 2010, will hover around the 8.5% mark. Life expectancy: 74 yrs
Workforce: 594,000
Vicious circle Unemployment: 8.3%
Export dependent sectors are faced with structural issues that can no longer Literacy: 84.4% (2000)
be resolved via depreciation. Depreciation results in increased inflation Poverty: 8% (2006)
which leads to demands for wage increase which ultimately results
increased production costs, thereby not resolving the issue. Mauritius needs Currency
to adapt and re-invent itself – as it has done, more than once, in past – in Currency: Mauritian Rupee
order to return to sustainable growth path. Symbol/code: Rs / MUR
Exchange rate: Rs 33 per USD
Rs 41 per EUR
CSO (Apr) CSO (Jul)
2007 2008 2009 2010F 2010F Economy (2009)
GDP growth rate: 2.2%
GDP Growth @ Mkt 5.5% 5.1% 2.2% 4.3% 4.0% GDP: Rs 274.8bn
Sugar -13.6% 3.7% 15.0% 8.9% 2.3% GDP per capita: Rs 215,500
Manufacturing 2.2% 3.2% 1.1% 2.1% 1.9% GDP ppp: $ 15.9bn (133rd)
GDP ppp per capita: $ 12,400 (91st)
Textiles 8.5% 0.0% -2.9% 1.0% 1.0%
Budget deficit: 4.5% of GDP
Financial Intermediation 7.5% 10.8% 4.9% 5.9% 5.9% Public debt: 58.7% of GDP
Real Estate 7.6% 7.6% 5.9% 5.8% 5.6% Current A/C deficit: 7.5% of GDP
Construction 15.2% 11.1% 6.5% 8.0% 5.0% Headline Inflation: 2.5%
Net intl reserves: 8.3% of GDP
Hotels & Restaurants 14.0% 2.7% -5.3% 5.1% 5.1%
Shifting Models
The Export Processing Zone (EPZ) model of the 1980s and
1990s was based on trade preferences and an ongoing
depreciation of the MUR. Today, the EPZ model is
obsolete; as local manufacturing companies have to
compete, on a level playing field, with low-cost production
countries such as Bangladesh, India, China, and Vietnam.
Financial Intermediation
Figure 5. Finance growth and share of GDP
Over the past decade, Mauritius has slowly but surely
developed into a reputable financial centre; albeit, a Financial Industry Performance
conservative one. This traditionalism was demonstrated Banking, the financial industry’s primary driver, came out
by the local banks which did not indulge into asset classes of the global financial crisis virtually unscathed. The
like the mortgaged-backed securities being at the heart of industry recorded a subdued 4.9% growth rate in 2009,
Wall Street’s meltdown. A main line of business, other compared to 10.8% in 2008. With respect to 2010, the
than banking, is the offshore sector which was recently CSO expects a 5.9% growth rate, but we believe the
renamed the Global Business (GB) sector. Having growth will be similar to 2009 levels due to the reduced
graduated to the OECD’s white list, government finds loan book and deposit base growth as recorded by MCB
calling Mauritius a tax haven derogatory. and SBM.
Revisions
The re-elected government has stated its intent to abolish
two highly unpopular taxes: the first on property and the
second on interest. Contrary to popular belief, the
removal of taxes on interest will not increase savings, as
the deposit base had continued to increase. The heart of
the ‘low-savings’ issue lies with the fact that the CSO
amalgamates SMEs and Households into a single entity.
Nonetheless, as a means to make up for lost revenue, the
re-introduction of progressive tax rates is a possibility.
Figure 11. Evolution of FDI distribution
Current Account
Figure 12 above suggests that the construction, banking
Mauritius being a small country, both by surface area, and
and tourism sectors have all been doped by FDI during the
domestic market size, it is almost inevitable – because
last few years, which led to the duly noted high growth
several specialised industries focused solely on the
rates. The Rs 8.8bn reached in 2009, compared to the
domestic market would not be sustainable – that the
record Rs 11bn levels reached in 2007 and 2008, is
country operates under a current account deficit.
commendable given the fact that FDI fallout globally was
much more pronounced.
Labour
The Mauritian labour force represents less than 50% of
the island’s population, with the unemployment rate for
men hovering just under the 5% mark, and the rate for
women at a high 15%, are cause for concern. In recent
times, the growth rate of employment has outpaced that
Figure 14. Evolution of the Repo Rate since introduction of the labour force, with select sectors such as Business
Process Outsourcing (BPO) facing a scarcity of qualified
The last MPC stated apprehensions of the resurgent labour. The unemployment rate for Q1 2010 reached
spectre of inflation and excess liquidity, as key arguments 8.3%, which we expect will reach 8.5% for the CY 2010.
for keeping the repo rate unchanged.
Exchange Rate
Exchange rate controls were removed in 1994, resulting in
the adoption of the managed float principle. The MUR is
now managed to a lesser extent, with the USD used as
benchmark currency.
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