An Economic Boom In Mauritius, A Tropical Paradise
Part of the African continent, with neighboring countries such as the Reunion Islands, Madagascar and the Seychelles, is the island republic of Mauritius. Over the centuries, Mauritius has been occupied at different times by three of the world’s greatest maritime powers. Beginning in 1578, Mauritius was a Portuguese possession and remained so until 1610 when it was abandoned by them. In 1615, the French took over the island until being driven out by the British in 1810. Finally, in 1968 Mauritius gained their independence, becoming a republic in 1992.
Mauritius brings to mind visions of tall slender palm trees quietly dancing in the trade winds, long sandy listless beaches, and waves from a cobalt blue ocean washing gently upon the shore. While all this is true, recently this nation is also being recognized for its competitive and export-driven economy.
According to the African Development Bank, Mauritius has been “benefiting from wide-ranging structural reforms since 2006 and sound macroeconomic management during the global economic crisis, Mauritius in 2013 overtook South Africa to become the most competitive economy in sub-Saharan Africa, although emerging challenges in governance and structural bottlenecks in education are a concern for investors. Having the region’s best business environment and most competitive economy, Mauritius is well placed to build on the progress it has made by participating in the global industry and services value chains.”
The economy in fact, despite the global slowdown of 2008/2009, has consistently achieved growth upwards of 3% per year with the World Bank now estimating 2015 GDP growth of 4.1%. Until a few years ago, the economy was built upon agricultural products, and primarily sugarcane which accounts for about 90% of the arable land and exports of approximately 407,000 metric tonnes per year.
Over the last couple of decades or so there has been a push to diversify the economy, with the introduction of textile manufacturing which has grown exponentially and has attracted a large amount of foreign direct investment. Exports of finished made products made specifically for designers from Calvin Klein to Tommy Hilfiger have increased to both Europe and the US. And of course, tourism is also a major component of the economy where more than a million people every year pump in vast amounts of foreign currency, adding to the foreign reserves of over $3.8 billion.
Mauritius has become an important banking and financial center partly because of the favorable tax treaty the nation enjoys with India, where foreign institutional investors can route their investments through the country, thereby taking advantage of the treaty.
However, there has been a revisiting of that treaty by the Indian government as there is a perception that it is being abused. For this reason, when DMS Funds launched its first Indian mutual fund, we chose to bypass Mauritius and invest directly in India. We believe we were the first fund company to do that. The recent visit by Indian Prime Minister Modi to Mauritius was to emphasize the importance India places on the island nation, and no doubt to calm fears that have arisen from knee-jerk reactions to the perceived abuse by members of the previous Indian government, in the taxation system.
In his speech, Mr. Modi told the Mauritius National Assembly, “I told Prime Minister (Anerood) Jugnauth that we understand the importance of the offshore banking sector for your economy. We are conscious of its dependence on India, I thank you for your support. But, I also assure you that we will do nothing to harm this vibrant sector of one of our closest strategic partners.”
The stock market of Mauritius is based in the capital city of Port Louis and has 40 companies listed with a total market capitalization of $5.3 billion. The exchange came into being in 1988, and in 1994 after the abolishment of exchange controls, foreigners were allowed to purchase stock on the exchange. In 1997 the exchange became electronic, and a year later a central depository system was implemented and the exchange adopted the T+3 delivery method.
Even though great strides have been made in the economy, US investors do not have many choices in obtaining exposure to this vibrant economy outside the iShares MSCI Frontier 100 Index ETF FM, in which Mauritius has a tiny exposure. However, as the country becomes better known and its economy grows, the tiny sliver they can call their own in this index will no doubt expand. As mentioned previously, investors can also purchase stocks directly on the exchange where the benchmark index the SEMDEX is -4.79% YTD.
Peter Kohli
pkohli@dmsfunds.com | 484.671.3011
