According to the CEO of Anneau, one of the main concerns of foreign investors remains the depreciating trend of the Mauritian Rupee, as highlighted by the Mauritius Exchange Rate Index. The MERI 1 index that indicates depreciation weakened from 101.7 in June 2019 to 119 in June 2021 while MERI 2 index that encompasses currency distribution of merchandise trade and tourism earnings rose from 100.6 to reach 118.1 in June 2021. The degree of volatility of the rupee is further revealed vis-à-vis the US Dollar as measured by the standard deviation of the Rs/USD exchange rate increased by four times from 0.42 in FY2018-2019 to 1.57 in FY 2019-2020, reflecting the extent of the impact of the COVID-19 on the Mauritian economy and further exacerbating public debt now valued at Rs. 388 Bn. and lower Sovereign credit ratings from Baa1 to Baa2.
“This downward trend has to be dealt with if Mauritius is committed to attracting sustainable foreign investments in its economy. One must understand that foreign productive investments (excluding capital in transit) in Mauritius means foreigners investing in our local currency. If the Mauritian Rupee continues to depreciate and loses another 10% of its value by the end of this year, our promoters will find it relatively harder to persuade foreign investors to put their money anywhere in Mauritius” says Amit Bakhirta as part of his reaction to the lack of fiscal consolidation in the budget.
As the Preliminary Gross Direct Investment Flows of the Bank of Mauritius shows, Rs 6.62 Bn. of the Rs 9.08 Bn. that were invested in the first three quarters of 2020 went to real estate activities. Amit Bakhirta warns that this trend can potentially harm future growth in that it is not sustainable over the long term; “Whether we like it or not, real estate alone has limited multiplier effect on the economy over the long term. Although this is not visible yet, the risk of a real estate bubble burst in Mauritius is real. We are already observing worryingly low occupancy rates in many property segments including apartments and offices which clearly indicate that the commercial real estate market is in a state of acute oversupply.”
Amit Bakhirta argues that the budget has not been able to address the fall of foreign investment in productive sectors: “Foreign investment is needed most in productive sectors such financial activities, tourism, ICT and the manufacturing sector. Although there are incentives to modernize equipment’s, the real difference will be made by new entrants. What is being offered to them are negotiable incentives on a case-to-case basis while what long term investors fundamentally look for is clarity in terms of macroeconomic, fiscal and monetary policies. Will this attract big names? There is likely to be room for doubt until we achieve fiscal stability.”
