Mauritius’ Investment Prospects in New Dawn

PORT LOUIS (Capital Markets in Africa) – The start of 2017 was marked by the resignation of Sir Anerood Jugnauth as Prime Minister (PM) who was replaced by Mr. Pravind Jugnauth. This ended months of speculation and resulted in a reconstituted cabinet. The new PM who kept the “Finance” portfolio, delivered an address which emphasized continuity on the most recent National Budget. Markets prefer certainty – a state of affairs – which this re-shuffled cabinet is poised to deliver despite the uncertain times ahead plagued by a “hard” Brexit, a Trump Presidency and upcoming elections in major EU nations. Should this administration deliver on its renewed promises, we expect prospects to remain positive.

The sector expected to benefit most in 2017 is the construction which is expected to renew with growth after several years of contraction and/or stagnation. Major public infrastructure projects have been delayed by bottlenecks; however, this situation appears to be improving. Key public transport infrastructure projects expected to be green-lighted during 2017 which include decongestion works (bridges/flyovers), a light-rail system linking the Plaines-Wilhems (where the majority of the population lives) and Port-Louis, as well as a programme to replace leaky decades-old water pipes. This reinforces our view of upbeat prospects for building materials companies during 2017.

Since the Great Financial Crisis, tourism and construction sectors – two key industries with wide-ranging spill-over effects – have not had positive prospects at the same time. 2017 marks a departure from that with Government maintaining an “appropriate” air connectivity policy to further diversify markets, and encouraging new developments following a moratorium. Both arrivals figures and tourism receipts are expected to increase in 2017. Room rate increases and higher occupancy are expected to boost hotel group’s earnings, however, the net effect would be uneven among hotel groups due to renovations works poised to take place during the low season.

The manufacturing sector is one experiencing most headwinds and uncertainty. Manufacturing growth has stagnated in recent years, and is likely to remain subdued. The GBP’s plunge against the MUR is hurting exporters, coupled with a cyclical demand slowdown for non-edible consumer goods. On plus side, Mr. Trump’s decision to stymie the USA’s adhesion to the Trans-Pacific Partnership (TPP) means that Mauritius can remain competitive in the US market through the Africa Growth and Opportunity Act (AGOA); however, given uncertain US policies, AGOA’s future is also unknown. Further, the recent stabilisation of commodity prices, especially the sugar price rally, bodes well for sugar conglomerates who will likely churn a profit in the sugar cluster in 2017 on the back of both a better harvest and higher prices. Sugar conglomerates are increasingly diversifying into capital intensive property developments which are likely to weigh down on earnings in the short term only to reap benefits in the longer-term.

The financial sector has remained resilient in recent years averaging a 5.5% growth rate. Government interventions in the aftermath of the collapse of a bank and life insurer appear to have stymied contagion. Given the weak investment rate, credit growth has been tepid which has resulted in excess liquidity in the system which in turn has driven sovereign yields to record lows. Consequently, core banking growth at large banks has been subdued. The renegotiation of the Double Taxation Avoidance Agreement  (DTA) with India in 2016 sent shockwaves through the sector; however several months down the road, India has renegotiated several other DTAs and Mauritius’ remains the most advantageous. The Global Business (GB) sector will have to re-invent itself as other sectors have had to in the past. The Sanne Group, listed in London, acquired The IFS Group – a leading GB player with a large focus on the Indian market – for $127M in Q4-16 signals that scope for a healthy GB industry exists.

In conclusion, 2017 should – if construction gets going as predicted – be one the best years for the Mauritian economy since 2010.

This article is featured in the March 2017 edition of INTO AFRICA Magazine, Africa’s Lions: Trust in Fundamentals.

Contributor’s Profile
Bhavik Desai leads the equity research and valuations department at AXYS Stockbroking which he joined in 2010. His primary foci are Mauritian equities and the burgeoning Mauritian fixed income market. Prior to joining AXYS, Bhavik worked on the implementation and monitoring of corporate strategies for the Office of the CEO at SAP Labs LLC in California. Bhavik holds a Double Bachelors in Arts in Physics and Astrophysics from the University of California, Berkeley.