Situated 1,200 miles off the east coast of Africa, and 500 miles east of Madagascar, the Republic of Mauritius is part of the Indian Ocean’s Mascarene Islands. The island nation includes Mauritius as well as nearby islands Rodrigues, Agaléga and St. Brandon. Geographically, Mauritius occupies a strategic position between Asia, Africa and Australia. While its stunning beaches and coral reefs make it a popular luxury tourism destination, it also has much to recommend it from a business perspective.
“Mauritius acts as a gateway to Africa and provides an appropriate regulatory framework for global companies,” comments Anish Jain, Chief Treasury Officer at Export Trading Group (ETG), an agricultural supply chain group headquartered in Dubai which has operating entities across 40 countries. “International trading companies are finding Mauritius as a favourable destination to house regional treasuries to cater to African requirements. Moreover, international banks based in Europe or Africa are also quite acquainted with Mauritius laws to provide lending solutions to their clients.”
Mauritius has undergone a considerable transition in recent years. Sugarcane was originally introduced to Mauritius in the 17th century and became central to the country’s economy, with sugar representing a quarter of GDP in the 1970s. In recent years, however, the nation has achieved greater diversification, with sugar now only accounting for 3-4% of GDP. Three quarters of the economy is service-based, with industry accounting for 21% and agriculture 3%, according to the African Development Bank.
This transition is still under way. As the World Bank’s website notes, “Mauritius faces the challenge of managing its transition to a knowledge based high-income economy driven by innovation and productivity growth. This will require a concerted effort to remove bottlenecks to new sources of growth and private investment, such as a lack of connectivity, skills shortages, and misaligned incentives.”
In 2019, Mauritius’ top exports included clothing, seafood, sugar, fish, gems and precious metals, while imports include petroleum, frozen fish and cars. The island’s main trading partners include France, India, China, US, UK and South Africa.
Impact of COVID-19
Before the arrival of the COVID-19 pandemic, real GDP growth in Mauritius had been forecast to be 3.9% in 2020 and 4% in 2021, with tourism playing a role in contributing to this growth. However, with the pandemic continuing to affect countries around the world, a GDP contraction is now likely. The World Economic Outlook published by the International Monetary Fund (IMF) in April 2020 forecast a 3% contraction in real GDP for middle-income countries in Sub-Saharan Africa, in which it included Botswana, Cabo Verde, Eswatini, Lesotho, Mauritius, Namibia, and Seychelles.
In particular, lower demand for tourism from European countries, alongside ongoing travel restrictions, is expected to have a major impact on Mauritius’ economy during the crisis. “I think it is pretty obvious that the industries that will face the brunt of this slowdown or recession, which is due to the outbreak of this virus, are definitely the tourism industry and our textiles manufacturing industry,” commented Parikshat Tulsidas, Senior Executive – Treasury & Markets at AfrAsia Bank in a video published by the bank in April. He also cites the construction sector as an area that is likely to see an impact, in light of the “high-end properties that we sell to foreigners.”
The government has introduced various measures to support workers and businesses, including the Government Wage Assistance Scheme (GWAS) and the Self-Employed Assistance Scheme (SEAS). The Key Repo Rate has been reduced by 100 basis points to 1.85%, and the Bank of Mauritius has likewise reduced the interest rate applicable on its Special Relief Amount under the COVID-19 Support Programme by 100 basis points. Other actions have included suspending capital repayments on loans for households affected by the crisis. Meanwhile, capital market activity has been suspended, as has trading on the Stock Exchange of Mauritius.
National confinement was introduced on March 20th and a curfew imposed on March 24th which has since been extended to June 1st. A report by Fitch Solutions Country Risk & Industry Research on April 21st noted that Mauritius is well-placed to avoid a large domestic outbreak of COVID-19 in light of these measures, adding that even in the event of a larger outbreak “a robust social security system and free health care means that the country is one of the best placed in sub-Saharan Africa to deal with any potential pressure on healthcare and incomes.”
Mauritius’ finance sector is governed by two main regulatory bodies. Established in 1967, the Bank of Mauritius is Mauritius’ central bank. It oversees banking institutions, with the Banking Act 2004 providing a framework for the licensing, regulation and supervision of banks and other financial institutions. The central bank’s main objectives include maintaining price stability, promoting orderly and balanced economic development and formulating and executing monetary policy consistent with stable price conditions.
In addition, the Financial Services Commission, Mauritius (FSC) acts as the regulatory for non-bank financial sector and global business, and is mandated under the Financial Services Act 2007. The FSC’s goals are to:
Promote development, fairness, efficiency and transparency across Mauritius’ financial institutions and capital markets.
Suppress crime and malpractice in order to protect members of the public investing in non-banking financial products.
Ensure the soundness and stability of Mauritius’ financial system.
“The banking landscape in Mauritius is very inward-looking,” comments ETG’s Jain. “Most of the banks present locally are risk-averse and do not understand the international trading environment.” Jain notes that the credit risk assessment of clients is based on local operations, adding that only a handful of banks in Mauritius have really graduated to the extent where they compete with international banks. “I believe the smaller size of the balance sheet for Mauritian banks is also a limiting factor to compete with large powerhouse banks,” he comments.