Mauritius: Risk Assessment

Country Rating¹

Rating: A3

Business Climate Rating¹

Rating: A3

Risk Assessment²

Highly sensitive to economic conditions in Europe and the United States
After a marked deceleration in 2009 and a modest recovery in 2010, GDP growth will fail to take off in 2011 as a result of the economic slowdowns expected in both Europe and the United States, which provide a market for nearly 3/4 of the island's sales abroad.
Exports of textiles and clothing mainly intended for the United States and United Kingdom will sag. The tourist revenues customarily brought in by Europeans will also be more constrained once again. The revenues from sugar and fish products are, however, expected to stabilize at a high level provided the weather conditions and the catches are good. The sugar industry will moreover benefit from the modernization of the sector financed by the European Union, much like the fishing industry where European interests are predominant. Sugar refining, fish processing, and fish farming are development priorities. The construction and public works sectors are expected to continue to grow. Strong infrastructure spending will compensate for the sluggishness in the construction of tourism complexes. Financial and telecommunications services, respectively 12% and 6% of GDP, will also continue to trend up.

Accommodating economic policy
In the face of the slowdown, economic policy will remain accommodating. Low inflation, below 4%, enabled the central bank to reduce its key rate to 4.75% with weakening the rupee and thereby spurring exports and tourism constituting a strategic objective. And the government adopted a succession of major programmes in recent years including, in December 2008, an Additional Stimulus Package; in July 2009, a special infrastructure programme Mauritius Approach intended to temporarily ease the financial charges weighing on tourism and textile sectors; and in 2010, a five-year Economic Restructuring and Competitiveness Programme intended to counter the effects of euro zone problems on exports by diversifying the tourism sector and developing small and midsize companies in the textile and sugar industries. And two incentive measures, Integrated Resort and Real Estate Schemes, intended to encourage foreigners to purchase luxury villas or flats in tourist complexes packaged with as deal sweeteners a residence permit and a possible tax residence (offering a 15% income tax rate, tax-free inheritance, and so on) have been maintained. This policy has resulted in an appreciable public-sector deficit and an increase in public debt (60% of GDP) issued mainly in the domestic market and in rupees.

Large trade deficit
The trade deficit will remain large and could even grow with the slowdown in exports not offset by a symmetrical decline in imports. Tourist revenues have yet to return to the levels prevailing before the crisis. The resulting external financing needs are currently covered by foreign investments, typically British, French, and South African, in industry and construction. Investors from China and India have been developing their presence on the island with the Indians particularly intent on making it a regional medical destination. Loans from the World Bank and European Union, intended for development of agricultural, transport, and purification infrastructure, in conjunction with bank deposits by foreigners, attracted by the role of Mauritius as a financial hub for investment in the region and as distant as India, constitute a second major source of financing.

Healthy economic fabric
Mauritian companies carry very little debt with most of it held locally and in rupees. Their profitability has been satisfactory. They invest not only domestically but also in other regional countries. Local banks, often subsidiaries of international institutions, have few nonperforming loans in their portfolios, are well capitalized, have good liquidity, and hold their cash on deposit locally. Little information is available, however, on the offshore activities they exercise via Global Business Companies.
 

Strengths

• Stable democratic system
• Good business climate
• Strength of the banking system
• Important financial center
• Franco-English bilingualism
• Close links with the European Union
• Developed health system
• Tourist potential 

Weaknesses

• Limited diversification: tourism, sugar, textiles, finance
• Shortcomings in education and vocational training systems
• Major role played by family controlled groups with possible eviction effect
• Maintenance of lines of ethnic separation
• Exports denominated in euros, imports in dollars
• Government controlled monopolies and subsidized prices in several sectors
• Continuing ethnic dividing lines