Introduction - Economic Review - Economy - The MCCI

Since 2009 achieving high levels of growth has proved to be a tricky task worldwide, with major economies failing to increase their output at reasonable rates. This situation is particularly worrisome for countries like Mauritius which is heavily dependent on external trade and foreign direct investment, even more so with the rise of competition from emerging economies in Africa, Asia and South America. Since the beginning of the crisis back in 2008, domestic companies have been battered but are bravely facing the adverse conditions to survive, with the anticipation that respite would not be far. These companies, four years later, are finding it increasingly difficult to withstand the adverse conditions prevailing in their markets, especially in the absence of additional support from local authorities to boost investment and increase competitiveness.

The tourism sector is highly likely to be next in line, with latest figures released signalling difficult times ahead.

Investment in hotels and restaurants has already fallen massively over the one year period. In 2007, investment grew at the rate of 37.7 percent. In 2011, it fell by 31.5 percent. A fall in investment harbingers only one thing: worsening prospects for the operators of this sector. This is confirmed by the latest figures in tourist arrivals and revenue of the sector. Growth figures for the sector will possibly have to be revised downwards in the coming months.

There are already signs that activity in the external sector is slowing down, with the level of employment in export oriented enterprises on a downward trend and a decline in the number of enterprises. Investment has also embarked on a downward trend, but thanks to significant investment prior to the global crisis and a re-engineering of activities, the sector was able to rebound in 2011 and even register a 7.8% growth rate. However, the unsustainable policy of maintaining an appreciating Rupee is thwarting the potential of Mauritius to achieve even higher levels of GDP growth. The increasing costs of production due to a rising wage bill and the upward trend in the prices of raw materials, coupled with a decrease in profitability of local manufacturers due to lower receipts in Rupees (as a result of an unfavourable exchange rate), and the reluctance to commit further investment without any visibility will have a definite impact on future the growth rates.

Fortunately for Mauritius, despite reigning global uncertainties and the advance impact on some sectors, the economy has been performing rather well thanks to the good performance of other sectors, namely the booming ICT sector and financial intermediation, which resulted in a 4.2 percent growth rate in 2010 and an estimated 4.1% in 2011.

ESTIMATED GDP GROWTH RATES FOR MAURITIUS
	Statistics Mauritius	MCCI	World Bank	IMF
2011	4.1	4.0	4.1	4.2
2012	4.0	3.8	3.3	3.7

However, while 2011 started rather promisingly, the economic situation deteriorated in the second half of the year with the escalating Euro crisis and its ensuing austerity measures, putting pressure on external demand, which was further exacerbated by a notable appreciation of the Rupee relative to major currencies. The resulting loss of competitiveness will definitely have an impact on the performance of the economy in 2012. This is confirmed by the MCCI Business Confidence Indicator. In fact, business confidence amongst local producers worsened at the end of 2011, which resulted in a fall in private investment.

Therefore, considering the expected deterioration of several economic indicators and a situation of sustained global disarray, the MCCI expected in November 2011 a growth rate of 3.8 percent while Statistics Mauritius forecast growth at 4.0 percent. These rates will probably have to be revised downwards in the coming months.

The IMF, in September, expected growth in Mauritius for 2011 to amount to 4.2 percent and to 4.1 percent in 2012. In January, in the context of the Article IV consultations, the IMF revised their figures for the Mauritian economy to stand at 3.7 percent. The World Bank, in January, put forward a growth rate of 4.1 percent for 2011. For 2012, the World Bank believes that Mauritius will be hit severely by the situation in the Euro Area, and growth is expected to fall to 3.3 percent.