The global economy continues to suffer from setbacks linked to the COVID-19 pandemic, as many of the leading economies are instigating lockdown periods to contain the second round of pandemic shockwaves. The International Monetary Fund (IMF) October World Economic Outlook projects 2020 growth to contract by 4.4 per cent, a relatively more benign position than what was projected for the year in June 2020, against a backdrop of some early signs of potential recovery. Authorities worldwide have implemented an arsenal of measures designed to protect the financial sector from the negative offshoots emanating from real sector contraction.
According to the Financial Stability report from 2020 from the Bank of Mauritius,
the domestic economy continues to face headwinds due to the COVID-19 pandemic and overall economic activity remains curtailed. The Mauritian economy began to contract from 2020Q2, following the two-month nationwide lockdown. The manufacturing sector, as well as the accommodation and food service sector – which is, to a large extent, inclusive of the tourism sector – were the most impacted since their activities declined sharply with the closure of borders and disruption in the global supply chains. Travel restrictions had knock-on effects on other domestic industries as well, especially those that are indirectly connected to the heavily impacted sectors.
Now that Mauritius is finally reopening its doors to the outside world in 2021, WIFIN had an interactive Q&A session with Pamela Leste, Economist/ Sustainability Expert to understand more about the Impacts of COVID-19 on the Financial Sector of Mauritius
Q. If we study the historical growth pattern for Mauritius over the last decade, the country’s performance has more or less mirrored global trends. Is 2021 going to be different or we can expect this trend to persist?
Economic growth in Mauritius rests on different pillars which are driven externally. Historically we started large scale sugarcane cultivation to export sugar to the European market. With the diversification of the economy, this export orientation has been prominent – textile and garments export, tuna exports, tourism. Covid-19 provoked an economic crisis as the supply chain got interrupted. Our recovery is dependent on world recovery. We have during the last 18 months been a worse hit compared to the global average. However, there are other indicators of growth measurement to take into account – household income, the standard of living, education…
Q. Covid-19 has shifted spending patterns. Inflation will feel much higher given the hike in prices. What are your thoughts on the depreciation of the Mauritian Rupee and how do you think this will affect the local purchasing power?
The rupee depreciation coupled with rising freight costs has resulted in a price hike. Under the current circumstances, a rise in salaries can hardly be expected and thousands of jobs are threatened too. Most households are coping with a reduced disposable income – compelled to prioritize their expenses. Temporary Government aid has certainly helped but the continuity of the provisions is questioned given its impact on public debt. It was probably the central bank’s duty to intervene with respect to the rupee and public opinion can hardly override this. We should take it as a challenge to produce what we can locally while benefiting from the improving competitiveness of our exports.
Q. The labour market has been facing difficulties to absorb young workers as youth employment keeps on increasing. The Mauritian Government’s labour market support schemes have helped contain the effects of COVID-19 on unemployment. Do you think once these labour support mechanisms and restrictions are softened, we might experience more redundancies in 2021?
Youth unemployment is worrying. As more young people pursue tertiary studies their aspirations also grow wider. The unfortunate situation is that our enterprises are not structured to recruit every year. If there are no expansion plans, the supply-demand gap keeps widening. As a country that is aspiring to become developed, it is time to consider creating more enterprises – which can take the form of spin-offs from large enterprises or the setting up of enterprises by the young generation themselves – supported by mentors and funders. There are sectors such as agriculture or manufacturing that can be modernized and where young people can play a key role.
Q. With Mauritius being the financial Hub of Africa, we find that it has been a difficult time for many businesses to operate. What is your advice to businesses wishing to operate in Mauritius to best prepare for the economic impact of coronavirus?
The barriers to conducting business were mainly due to the closing of borders to commercial flights, the practice of quarantine and the slow down in maritime freight. In a context where globally, thousands of people were tested positive every day, the local priority has been to protect lives. Business performance was secondary at the outset but over time lessons were drawn. Covid is here to stay and business has to adapt – or rather the people behind the businesses. Work from Home in sectors like financial services has been a success. Today we are working differently with strict protocols including vaccination. It will take some time and patience for other sectors like tourism to recover. The world has gone through successive ‘business or economic’ cycles and we have passed the trough of the current one.
Q. We have seen a shift to working from home during the lockdown in Mauritius. Do you think technology and innovation have played a key role in the financial service sector amidst COVID-19?
Indeed technological readiness has been favourable to the Work from the Home concept. Responsiveness and innovation were also on the high side, accelerating the implementation of WFH. Online shopping with all its drawbacks has contributed to the possibility of working at home. Online schooling has kept the students in contact with their studies while parents could also work from home.
Q. Looking to the future, do you see promising investment opportunities happening in Mauritius in the coming decade. How fast do you think the financial sector of Mauritius will be able to recover from the impact of the COVID-19?
Mauritius is full of champions – we will overcome. The financial sector will do well and is important to drive all other sectors. New financial products will emerge – people have realized the importance of savings and of insurance. Similarly, there are significant opportunities in expanding other sectors or developing new sectors with the support of foreign investment and expertise. There is scope for much more regional integration and more active involvement in the regional supply chain development. The country should endeavour to continuously innovate.
Pamela Leste is a Senior Manager in the Corporate Finance Division of BDO Mauritius. She is an Economist with over 20 years of professional experience, with a keen interest in Sustainable Development. She has conducted several assignments related to economic and financial analysis as well as advisory services in Mauritius and Southern African Countries. She has wide experience of several types of businesses in different sectors.
Pamela has conducted several social and economic analyses for real estate and hospitality development projects, including facilitating focus groups with local communities and stakeholders in different regions of the island, particularly for Smart Cities and PDS projects.
Pamela holds a Masters in Business Administration from IAE Poitiers, a Postgraduate Diploma, Agribusiness Management from the Imperial College London and a Bachelor of Science in Economics, Geography and Environment from the London School of Economics and Political Science (LSE).
Disclaimer: Pamela’s views are her own and do not represent the views of her employer.**
Thank you for joining us!
(WIFIN Q&A Sessions 2021)