In the second of three articles looking at improving risk profiles of countries in the Euromoney Country Risk survey, Jeremy Weltman looks at another promising island nation.
Similar to the Dominican Republic, featured previously, Mauritius is one of those emerging or frontier markets that has seemingly gone under the radar, overshadowed by the world’s larger and more illustrious investor domains.
It is one of the 60 out of 174 countries with higher risk scores in Euromoney’s latest quarterly survey of expert opinion compared with year-earlier levels. It is also one of the 30 with a double-digit improvement in five- and 10-year score trends.
Mauritius is currently 36th in the global risk rankings and the amelioration in its total risk score means it has climbed into the second of five categories of risk for the first time, putting the country on a par with France, United Arab Emirates and Qatar, plus safer than tier-three options Lithuania, Spain and Saudi Arabia, lying below:
One prominent local expert anonymously mentioned that the country’s improving risk profile has more to do with political stability, noting that the economy largely depends on tourism, which was badly hit by the pandemic and restrictions imposed at the international level.
There are no imminent elections and prime minister Pravind Jugnauth, of the Militant Socialist Movement (MSM), is backed by a solid parliamentary majority from the MSM-led alliance.
Nevertheless, the country was rocked by a series of non-violent protests in 2020 into early 2021, ostensibly over an oil spillage when a tanker ran aground on a coral reef in July 2020, but also encompassing widespread animosity over electoral fraud and corruption.
It led, unusually, to a militarized deployment, a clampdown on civil liberties and the closure of parliament. The government subsequently introduced a new bill to regulate independent media. This was a factor behind a downgraded score for the policy and regulatory environment that is marring an otherwise bright country risk outlook.
However, economic fortunes are picking up, highlighted by better scores for all of the economic risk factors this year.
Another outstanding factor in favour of Mauritius’s improvement is the quick response of the government to improve business conditions- Reinhold Kamati, Bank of Namibia
With a rapid and efficient vaccination programme, and the opening of borders effective from October 1, 2021, sentiment has been rising. The outlook is positive for exports and the tourism industry, which normally contributes a quarter of GDP.
Survey contributor Reinhold Kamati, principal economist at Bank of Namibia, believes that the robust economic development in Mauritius – in terms of export and import efficiency – its ability to react to crises quickly and its openness seem to be contributing factors more than in other countries in the region.
Economic growth has been somewhat better, too, despite being below the sub-Saharan Africa average, if the huge drop in GDP in 2020 is ignored as a one-off.
“Another outstanding factor in favour of Mauritius’s improvement is the quick response of the government to improve business conditions, while macroeconomic stability is clearly an outcome of a fully responsive central bank that has contributed to improving the situation in Mauritius,” says Kamati.
This credibility, he says, has resulted in well-anchored inflation expectations around the 2% inflation target, despite the increase in global inflation pressure that has seen the headline rate go above 6% in a couple of months this year.
Price pressure will continue into 2022, but wage demands seem muted, Kamati points out.
The country is also shouldering a high level of public debt, made worse by the pandemic, exceeding the average in southern Africa.
The country is not immune to the new and more infectious wave of the Covid-19 Omicron variant sweeping through the country, having an indirect impact on exports and tourism.
However, the country has a high vaccination rate.
The authorities have reacted well to the Covid-19 pandemic, probably because the country is well prepared for crisis management, notes Kamati.
“Covid-19 had a severe impact on the economy as an open economy, but moderate policies to stop the spread of the virus have averted a lot more pain that could have been experienced,” he says.
“Overall working hours only marginally reduced compared to many countries that experienced a reduction in working hours due to prolonged lockdowns.”
As Global Finance points out, there are also various infrastructure projects planned to boost growth and lower unemployment.
It states: “The 2021-2022 budget includes projects along environmental and social lines – flood mitigation, green energy, water treatment and 12,000 new units of affordable housing – as well as traditional big infrastructure, such as the Rivière des Anguilles dam,” before going on to mention transport projects and measures to encourage the use of electric vehicles.
The question is whether Mauritius can retain its tier-two ranking. However, with ECR’s survey experts in no mood to downgrade a country that is now emerging from the crisis, there is every reason to expect it will.